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Virgin Money Group Annual Report and Accounts 2017

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Virgin Money Group Annual Report and Accounts 2017 Virgin Money Group Annual Report and Accounts 2017 There’s Money and There’s Virgin Money About us With our powerful brand, strong balance sheet and customer-focused culture, we delivered a strong performance for all of our stakeholders in 2017. Virgin Money Group Annual Report 2017 I 01 Strategic Report Strategic What’s in this report? Strategic Report [] Five year track record 2 2017 Company highlights 3 Financial highlights 4 Business performance 6 Financial Results Chair's statement 8 Chief Executive’s review 10 Women in Finance Charter 14 Market overview 16 Our business model and strategy 18 Delivering for stakeholders 20 Risk overview 30 Financial Results Summary of Group results 41 Business line results 52 Governance Governance Letter from the Chair 62 Board of Directors 64 Virgin Money Executive 69 Corporate Governance Report 71 Directors’ Remuneration Report 95 Directors’ Report 120 Risk Management Report Risk Risk Management Report The Group’s approach to risk management 127 Risk management framework 129 Emerging risks 130 Risk classes 133 Full analysis of risk classes 134 Financial Statements Independent auditors' report 191 Consolidated financial statements 200 Parent company financial statements 251 Financial Statements Other information Alternative Performance Measures 262 Glossary 263 Abbreviations 266 Shareholder information 267 The 2017 Annual Report and Accounts incorporates the Strategic Report and the consolidated Financial Statements, both of which have been approved by the Board of Directors. Other Information Other On behalf of the Board Glen Moreno Chair 26 February 2018 Cover image: Virgin Money Lounge, Manchester 02 I Virgin Money Group Annual Report 2017 Five year track record 2017 2016 2015 2014 2013 2017 Growth highlights Mortgage balances £bn 33.7 29.7 25.5 21.9 19.6 Credit card balances £bn 3.0 2.4 1.6 1.1 0.8 Total customer loan Total assets £bn 41.1 35.1 30.2 26.5 24.6 balances grew by Deposit balances £bn 30.8 28.1 25.1 22.4 21.1 +14% Quality Cost of risk % 0.13 0.13 0.12 0.07 0.15 Low cost of risk Common Equity Tier 1 capital ratio % 13.8 15.2 17.5 19.0 15.5 Total capital ratio % 18.1 20.4 20.2 22.1 18.6 0.13% Leverage ratio % 3.9 4.4 4.0 4.1 3.8 Returns Return on tangible Statutory total income £m 662.7 581.4 521.9 438.3 383.0 equity Statutory profit before tax £m 262.6 194.4 138.0 34.0 185.4 14.0% Underlying profit before tax £m 273.3 213.3 160.7 104.7 43.6 Net interest margin % 1.57 1.60 1.65 1.50 1.26 Statutory basic Cost:income ratio % 52.3 57.2 63.5 72.5 80.1 earnings per share Return on tangible equity % 14.0 12.4 10.9 7.4 2.6 +29% Statutory basic earnings p 37.8 29.4 22.9 (0.4) 42.4 per share Underlying basic earnings p 39.8 32.7 26.8 18.5 5.6 per share Alternative performance measures Non-financial reporting These results have been prepared in accordance with The Group has complied with the new EU non-financial International Financial Reporting Standards (IFRS). Aspects reporting directive requirements within the strategic report. of the results are adjusted for IPO share based payments, The non-financial information provided by the Group strategic items and fair value (losses)/gains on financial can be found at: instruments, to reflect underlying performance. Further > Description of business model – page 18 information, including reconciliations of the Group’s statutory and underlying results, is reported on page 48 and in note 2 to > Principal risks – page 36 the consolidated financial statements. > Environmental – page 28 The Group uses a number of alternative performance > Employees – pages 14 and 22 measures, including underlying profit, in the analysis and > Social matters – page 26 discussion of its business performance and financial position. Further information is provided on page 262. > Human Rights and Modern Slavery statement – page 25 > Anti-bribery statement – page 25 Virgin Money Group Annual Report 2017 I 03 Strategic Report Strategic 2017 Company highlights In 2017 we delivered a strong performance for all of our stakeholders. Highlights included: Financial Results Company and shareholders Growth of Growth of Growth of 37% 28% 9% in statutory profit after tax in underlying profit before tax in tangible net asset value per share Final dividend Governance Recommended final dividend of 4.1 pence per ordinary share. This will result in a total dividend for 2017 of 6.0 pence per share, an increase of 17.6% compared to 2016 Colleagues Customers Risk Management Report Risk More than Increased our overall customer 3,000 Net Promoter Score (NPS) to colleagues work for +40 Virgin Money and our from +29 in 2016, maintaining latest engagement score our position as one of the of 76% compares well best-rated retail banks in the against industry standards UK for customer advocacy Financial Statements Communities Corporate Partners Virgin Money Giving Increased our helped to raise almost intermediary NPS to £95 million +61 for good causes. from +55 in 2016. We also won Our not-for-profit online ‘Best Lender for Partnership’ donation service has raised from Legal & General for the Information Other more than £600 million for third consecutive year and ‘Best charities since launching Innovative Lender’ from Sesame in 2009 Bankhall Group 04 I Virgin Money Group Annual Report 2017 Financial highlights Total customer loan balances Deposit balances 14% 10% growth growth 2017 £36.7bn 2017 £30.8bn 2016 £32.1bn 2016 £28.1bn 2015 £27.1bn 2015 £25.1bn Positive JAWS Cost:income ratio 9.8% 52.3% 13.5% growth in underlying total income for 2017 against 3.7% growth in expenses 2017 52.3% 2017 Income £666.0m 2016 57.2% 2017 Expenses £348.5m 2015 63.5% 2016 Income £586.9m 2016 Expenses £336.0m 2015 Income £523.5m 2015 Expenses £332.5m Underlying profit Statutory profit before tax after tax 28% 37% growth growth 2017 £273.3m 2017 £192.1m 2016 £213.3m 2016 £140.1m 2015 £160.7m 2015 £111.2m Virgin Money Group Annual Report 2017 I 05 Strategic Report Strategic NIM Return on tangible equity 1.57% 14.0% Financial Results for 2017 for 2017 2017 1.57% 2017 14.0% 2016 1.60% 2016 12.4% 2015 1.65% 2015 10.9% Governance CET1 Ratio Tangible net asset value per share 13.8% 9% Management Report Risk for 2017 growth 2017 13.8% 2017 £2.97 2016 15.2% 2016 £2.73 2015 17.5% 2015 £2.54 Financial Statements Underlying basic earnings Statutory basic earnings per share per share 22% 29% growth growth 2017 39.8 pence 2017 37.8 pence Information Other 2016 32.7 pence 2016 29.4 pence 2015 26.8 pence 2015 22.9 pence 06 I Virgin Money Group Annual Report 2017 Business performance Mortgages Savings We offer customers a range of residential We offer customers a range of competitively- and buy-to-let mortgages in the prime priced instant access and fixed term savings secured lending market. Mortgages are products, both also available as ISAs. sold predominantly through our intermediary Savings are sold primarily through our digital partners and supplemented by direct channels and supplemented by our Stores distribution. and contact centres. Mortgage balances increased to Deposit balances increased to £33.7 billion £30.8 billion Growth of 13% was driven by our Growth of 10% was underpinned by our award-winning intermediary proposition. award-winning ISA proposition. Lending to first time buyers Cash ISA balances increased to increased £16.6 billion 20% year-on-year. New build completions Growth of 27% year-on-year reflected the increased by almost 50% year-on-year. strong appeal of our ISA products. Mortgage retention supported Strong retention of savings balance growth customers 72% of mortgage customers selected 89% of fixed rate savings a new mortgage product with us at the end customers stayed with us at the end of their existing deal, up from 68% in 2016. of their product term. Mortgage completion spread Total cost of funds reduced to 168 bps from 187 bps in 2016. 59 bps from 80 bps in 2016. 33.7 30.8 28.1 29.7 25.1 25.5 2015 2016 2017 2015 2016 2017 Mortgage balances (£bn) Deposit balances (£bn) Virgin Money Group Annual Report 2017 I 07 Strategic Report Strategic Credit cards Financial services Financial Results We offer prime credit quality customers We offer customers investment, a range of balance transfer and retail insurance and currency services. credit cards. Cards are sold primarily We work with specialist partners through our digital channels. to deliver these propositions, primarily through digital channels. Credit card balances increased to Funds under management £3.0 billion £3.7 billion Governance Growth of 24% was achieved while consistently Growth of 10% including the performance targeting low risk customer segments. of the FTSE All-Share Index. Market share Stocks & shares ISA sales share of the £71 billion cards market. benefitting from the increased 4.1% +40% Management Report Risk £20,000 ISA savings allowance and strong partnership sales through Virgin Atlantic Airways. Retail spend per active account Travel insurance NPS +8% retail spend per active account +38 from +35 in 2016 demonstrating supported by increased customer the benefit of improvements to the customer engagement and ‘Virgin Money Back’, journey in our direct channel. our new cashback initiative. Financial Statements Cost of risk Life insurance 1.51% compared to 1.70% in 2016.
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